Back in April with very little fanfare (or public comment), Indiana passed a law requiring out of state merchants to start collecting sales tax on online purchases made by Hoosiers. Although affiliate nexus legislation had been proposed in the past by Democrats, Republican State Senator Luke Kenley always made sure it was shut down. Now Kenley was one of the driving forces behind the new economic nexus tax. I’ll break down what it entails and why it is a bad idea for Indiana right now.

The Law

House Bill 1129 provides that an out of state merchant must collect sales tax on Internet purchases if the merchant either makes 200 or more separate transactions in Indiana in a year or their gross revenue from Indiana sales exceeds $100,000 in a year. The law took effect July 1, 2017.

The Rationale is Wrong

First of all, local merchants are not at any real disadvantage based on the tax issue. The Performance Marketing Association recently surveyed over 750 online shoppers. Only 1% said that one of the top reasons that they shop online is to avoid taxes. That means that at most, local merchants are missing out on 1% of their sales based on the sales tax issue. Conversely, they receive a lot of local benefits such as police and fire protection, roads, etc. I don’t want to see the mom and pop store go out of business, but if they do, it won’t be because they have to collect taxes on purchases.

Second, those numbers of projected tax revenue loss would be MUCH less than the 2012 projections. Amazon started collecting taxes in Indiana as of January 1, 2014. Yes, online shopping numbers have gone up since the study in 2012. However, much of that is from companies with physical locations in Indiana who are already collecting taxes (Best Buy, Walmart, etc). In fact, looking at Slice Intelligence’s numbers for the 2016 holiday season, at least 9 of the top 10 merchants for online spending were collecting taxes–for a total of over 60% of shopping. Imagine what those numbers look like when you throw in all of the other brick and mortars plus the merchants who were already voluntarily collecting.

We Have a Lot to Lose Now

The legislators know Indiana is in for a fight. South Dakota is already undertaking substantial judicial action to enforce their very similar law. In fact, our legislators specifically said that they anticipate the impending litigation. How much money will it cost taxpayers to defend this new law rather than waiting for the Supreme Court to take up the South Dakota case or for Congress to pass one of the several bills currently proposed that would end this whole thing? Attorneys will be the biggest beneficiary of this law for quite some time.

In addition to the money defending the law, the state is ALREADY losing income tax money as a result of passing it. Zulily sent out an email to all of the affiliates in the state saying that they are dropping them. Which other merchants will follow suit? The state just lost any income tax from affiliates in programs that drop any type of nexus state affiliates.

Taking that a step further, a business like mine (Sunshine Rewards) will now lose customers in general because I have lost a merchant like Zulily. So not only do I lose the Zulily revenue but I also lose all of the business of my members who want to shop through a website that works with Zulily. And for every dollar Sunshine Rewards loses, the State of Indiana loses the income tax on it. Multiply me across all of the affiliates in Indiana and we’ll see an immediate drop in tax revenue starting with our next quarterly filings.

Some of my biggest competitors have either moved out of the country or are owned by companies outside of the country–in many cases to avoid state issues like this. How is that good for Indiana or Americans in general?

Businesses came to Indiana after Illinois passed an affiliate nexus tax. Will those same businesses now make the decision to leave Indiana as a result of our law?

Right Motives, Wrong Execution

I understand that Indiana wants to capture more tax revenue (ironically it was the Republicans who passed this law despite always saying “no new taxes”). However, this law was passed without any real understanding of the potential implications for all of the affiliate marketers in the state. We were never given the chance to plead our case or even explain the ramifications. In trying to save the “little guy” small businesses on Main Street, they harmed the “little guy” small businesses run by work-at-home moms and dads, retirees, and other entrepreneurs. From a pure numbers standpoint, this law will cost Indiana a lot of money in the short-term with only the HOPE that it may make the state money in the long-term.

By now you would have to live under a rock not to have heard about the economic stimulus package that President Obama signed into law. The actual name of the law is the American Recovery and Reinvestment Act of 2009 and can be viewed in full here. I actually went and read the text of the law as it relates to COBRA because that part is going to have a very immediate impact on my family.

In a nutshell, the part of the package that pertains to COBRA says that if you are “involuntarily terminated” from your job between September 1, 2008 and December 31, 2009, you may be eligble to elect COBRA at 35% of the normal rate. The stimulus money will subsidize the other 65%. Some of the fine print includes that you can only elect it for 9 months at the reduced rate, you cannot take it if you are eligible for coverage with a new employer, and the subsidy phases out if you make more than $125,000 ($250,000 married).

Even if this didn’t impact me directly, I would be in favor of this part of the package. It makes affordable insurance for people who have been working and were laid off. It doesn’t allow people to take advantage of it if they get a new job with coverage. It phases out at a fair point where people should be able to pay for coverage themselves. And it sets definite time constraints so that it is only a temporary measure while people in the country are getting back on their feet. Hopefully it will keep more people from either not getting medical assistance when they need it or just getting treatment and then abandoning their financial responsibilities anyway.

Now the part about how it impacts me is more difficult. At first when I heard this, I was ecstatic. My husband just lost his job after 10 years because his company is closing. I’m self-employed, so he has always carried coverage for us and our two young daughters. One of our biggest worries when we found out about his job two weeks ago was about the health coverage. So this is perfect, right?

Then why do I feel a pang of guilt taking the subsidy? In some way, it feels like taking a government handout, which isn’t something that my husband and I ever want to do. On the other hand, we’ve both paid our taxes faithfully since we were 16. We’ve always worked full-time (sometimes two jobs each) and continue to pay our fair share of taxes. It’s only fair that we take the help at a time when we need it, right? Maybe it’s pride that gets in our way.

No matter what we personally decide to do, the COBRA provisions of the stimulus package are going to help a lot of people who are trying to help themselves.